Modern portfolio theory is claimed by its adherents to be one of the cornerstone of modern finance. This combined with other academic finance jargon such as Beta, Efficient frontier, CAPM, etc are taught as medicine to fools who go to attend MBA classes or choose to take academic finance classes. In case you jump to conclusions at this point, thinking that I am a whimsical egomaniac, let it be known that I was once one of these fools.
To give credit to the theory one might say it is for people who are complete idiots when it comes to business, trading and investing. Because for these people if they create a diversified portfolio - fundamentally that is what MPT boils down to - they should be fine. Engineers can go back to fixing bugs and doctors can go back to fixing patients and all will be fine. By minimizing their risk through diversification or taking an average amount of risk, they will do better than even bigger idiots - folks who think that putting their fiat currency wage earnings under their mattress or in a savings account would save them from the vagaries of inflation.
What is so great about coming up with a huge theory that your grandma already knew by heart - don't put all your eggs in one basket. But telling people false theories such as EMH etc what these people have done is to lull the masses into a false sense of complacency. Don't even try to understand financial markets. Don't understand trading, don't understand the psychology of investing or markets. None of this matters - just put all your money in a broad market index of stocks and bonds and go home. Its utterly useless to understand psychology of the markets - behaviour of crowds, hurding, pump and dump schemes etc.
To be continued.
To give credit to the theory one might say it is for people who are complete idiots when it comes to business, trading and investing. Because for these people if they create a diversified portfolio - fundamentally that is what MPT boils down to - they should be fine. Engineers can go back to fixing bugs and doctors can go back to fixing patients and all will be fine. By minimizing their risk through diversification or taking an average amount of risk, they will do better than even bigger idiots - folks who think that putting their fiat currency wage earnings under their mattress or in a savings account would save them from the vagaries of inflation.
What is so great about coming up with a huge theory that your grandma already knew by heart - don't put all your eggs in one basket. But telling people false theories such as EMH etc what these people have done is to lull the masses into a false sense of complacency. Don't even try to understand financial markets. Don't understand trading, don't understand the psychology of investing or markets. None of this matters - just put all your money in a broad market index of stocks and bonds and go home. Its utterly useless to understand psychology of the markets - behaviour of crowds, hurding, pump and dump schemes etc.
To be continued.
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